Buoyed by Tesla, Port of Oakland wants to be ships’ first stop

Erasmo Barrera, an employee for Impact Transload and Rail, moves a pallet of beer at the Port of Oakland on January 26, 2017. The port is trying to convince shipping companies arriving from Asia to first visit its facility as a way to boost import business.

Erasmo Barrera, an employee for Impact Transload and Rail, moves a...

On any given day, large cargo ships from Asia pass under the Golden Gate Bridge into San Francisco Bay and dock at the Port of Oakland.

Many of these vessels carry a lot of empty space, having already unloaded their cargo in Long Beach. It has been nearly a decade since a ship traveled directly from East Asia to the East Bay.

That may be about to change. Port of Oakland officials are pressing shipping lines traveling from places like China and Japan to make the East Bay their first port of call. In doing so, the port is challenging its larger and more powerful counterpart in Southern California for a piece of the sizable import market.

The campaign is not about mere bragging rights, but rather the need for the port to balance its export-heavy operations with imports, said Chris Lytle, the Port of Oakland’s executive director.

“There are a lot of of import customers in Northern California that prefer to get their cargo first,” Lytle said. “We’re not trying to be like Long Beach/Los Angeles, but time is money for these companies.”

At first glance, Oakland would seem to be outmatched. Given the global shipping glut, in which too many companies are chasing too few customers, ocean liners have consolidated their routes to visit fewer ports. That’s why Long Beach, with its expansive facility, major railroad connections and large consumer markets in Los Angeles and San Diego, attracts most of the import business from Asia.

About 90 percent of the cargo that moves through Long Beach is from East Asia. In 2016, Long Beach’s imports totaled 3.4 million full 20-foot equivalent units (a standard measure of cargo traffic), compared with just 883,647 for Oakland, according to figures from each port.

Photo: JOSH EDELSON, JOSH EDELSON / SAN FRANCISCO CHR

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A port employee walks near a ship at the Port of Oakland on January 26, 2017. The port is trying to convince shipping companies arriving from Asia to first visit its facility as a way to boost import business.

A port employee walks near a ship at the Port of Oakland on January 26, 2017. The port is trying to convince shipping companies arriving from Asia to first visit its facility as a way to boost import business.

Photo: JOSH EDELSON, JOSH EDELSON / SAN FRANCISCO CHR

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Employees for Impact Transload and Rail move parts destined for Tesla's new Gigafactory at the Port of Oakland on January 26, 2017. The port is trying to convince shipping companies arriving from Asia to first visit its facility as a way to boost import business. less

Employees for Impact Transload and Rail move parts destined for Tesla's new Gigafactory at the Port of Oakland on January 26, 2017. The port is trying to convince shipping companies arriving from Asia to first ... more

Panasonic and Tesla are spending about $5 billion to build the factory and need to keep operations as efficient as possible. To make the Gigafactory financially feasible, the companies need “just in time” arrival of electric components from Asia to meet customer demand as it occurs, Lytle said. Eventually, Tesla wants to make a million electric cars a year.

Routing ships to Oakland instead of Long Beach could save a day’s worth of sailing time, said Neil Davidson, a senior port analyst for Drewry, an international shipping research and consulting firm in Great Britain. In addition, cargo bound for Northern California sits at Long Beach for about three days before taking another day to reach its destination.

Tesla did not respond to a request for comment. The automaker already receives some components through Oakland, according to the port.

“Oakland has a substantial local market hinterland that will always mean that making calls at Oakland is important for shipping lines,” Davidson said.

“If you are the first port call, then the cargo can get on the rails and get to market quicker than if you are second,” he said. “Oakland’s success in this respect will lie in exploiting its location.”

Since 2015, ocean freight rates for cargo moving on the major East-West trade routes fell in six consecutive quarters before finally rising 3 percent in the fourth quarter last year, according to Drewry.

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The remaining carriers have formed “alliances,” similar to the code-share arrangements that airlines have used. Under such an arrangement, ships owned by one company can carry cargo from a competitor’s customers. The carriers then split the revenue. But to make alliances more efficient, carriers have reduced the number of ports.

“The ambitions of the Port of Oakland do not fit well with the port of call preferences of shipping lines,” said Jean-Paul Rodrigue, a professor of global studies and geography at Hofstra University in New York. “For time-sensitive containerized cargoes, Prince Rupert (a port town in British Columbia) is a better option, since it has a direct rail connection to Chicago.

“The majority of the first port calls on the West Coast are to Long Beach, because the retail cargo that dominates most of these trades is bound to the large consumption market of Southern California, with the remaining shipping by rail toward Chicago,” Rodrigue said. “Southern California acts as a large magnet that shippers cannot ignore in their port of call sequence.”

But Lytle remains cautiously optimistic. Of the 28 carriers from Asia that frequent the Port of Oakland, officials are confident that two or three will eventually make the East Bay their first port of call.

As for siphoning business from Long Beach, Lytle doesn’t think the volume will be significant.

“They have a lot of cargo that goes down there now,” said Lytle, who was a top official at Long Beach before coming to Oakland. “It won’t make a big difference. It won’t swing the needle the other way.”

The shipping industry is brutal right now, with companies fighting for any scrap of business. Any change to the status quo could reverberate throughout the market. And last year, Long Beach’s imports actually fell 5 percent.

Given those conditions, Long Beach might not be willing to cede its priority to Oakland, Gigafactory or no Gigafactory.